Our Current Market Outlook has been changed to “Uptrend Under Pressure” and our light is now “yellow“. The stock market came under significant selling today in response to escalating trade tensions with China, and in the process knifed through the first of two key moving averages and sank further under an important trendline. The bulls ability to support stocks and drive prices into all-time high territory will face a major test this week as worries about new tariffs starting on Friday will likely produce more immediate selling. In our 04/29 post we wrote, “The market will pause and even pull back at some point soon…”, apparently soon has arrived.
While there is a chance that this could be the start of something ugly, that would take significant additional technical damage, which we are not even close to yet. If it happens, it would take several days to develop and further unwind. Under a yellow signal it is wise for investors to play some defense; raise a little cash by taking some 20%+ profits off the table and cutting any losers even before the typical 7-8% stop loss level. Investors may even consider allocating capital in areas that exhibited relative strength today, e.g. gold miners, utilities and bonds. The problem with that is that if the trade talks reach a favorable outcome those defensive ideas will get left in the dust as the market would likely soar and return to a green light.
All in all, the trend is still up but it is tiring and is under growing selling pressure. A correction of 3-5 %, even up to 10%, is not out of the question and would probably act as a refresher for the current rally. We have raised some cash over the past week in a few of our strategies and will let the market dictate if more is necessary. To be clear, the amount of technical damage, exhibited by the internal indicators we utilize that make up our proprietary mathematical sell discipline, is still minimal and does not suggest a serious threat is brewing… yet.
Have a Triumphant day! ®
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